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Retention of title clause in favour of lender ineffective
Where funds are advanced for the purpose of purchasing a specific asset, a clause which purports to allow the lender to retain title to that asset until it is repaid is unlikely to be effective where title has not been transferred to the lender and no security interest has been registered.
This case emphasises the importance, for anyone considering lending money, of attending to the proper formulation and registration of security arrangements.
Jade McTainsh agreed to lend her father money to buy a boat. According to the loan agreement, she would retain title to the boat until she had been repaid in full. However, REM Holdings later seized the boat to satisfy a judgement in its favour against Jade's parents.
The High Court1 judge agreed with the District Court judge's decision that title to the boat was never transferred to Jade and that she was not the beneficial owner. The retention of title clause was an attempt to give Jade security for the loan, but it was not registered on the Personal Property Securities Register and as a result Jade was an unsecured creditor of her father.
1 McTainsh v REM Holdings Limited (High Court, Tauranga, 27 January 2005)
Enquiries and information
For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
